Emerging Markets, Done Differently

We believe:

• Active management means you’re willing to do things differently.
• Our commitment to high-conviction investing gives us the highest likelihood of achieving the best results for investors over the long term.
• We use the benchmark at the end of our portfolio construction process as a reference point because using it at the start—as many of our peers do—caps opportunity.
• CNWIX’s allocation to India exemplifies the potential benefits of our active approach.

Across our global suite, including Calamos Evolving World Growth Fund (CNWIX), our team’s process has led us to invest in a truly active manner, resulting in portfolios that often look different from their primary benchmarks.

Not all of our peers are participating in the growth of emerging markets the same way we are. Not only are we willing to hold meaningfully active overall weights to countries relative to a benchmark, we are also willing to have exposure to companies that aren’t included in the benchmark at all. (That said, in many cases this has been a case of being ahead of the curve, with the names we own ultimately being recognized by MSCI.)

We use the benchmark as a reference point at the end of our process to understand the risk we are taking. In contrast, more passive approaches generally use the benchmark at the beginning of the process, which can result in screening out or capping exposure to a specific company at a low level, thereby constraining themselves by a backward-looking benchmark. “Backward” in that index providers include companies based on current and past attributes, such as market cap, rather than future growth potential.

Upcoming changes to the MSCI Emerging Markets Index, which most emerging market managers use as their primary benchmark, support our conviction in our active, forward-looking approach. MSCI recently announced that during its next index rebalance at the end of August 2024, it plans to cut 62 Chinese names from the benchmark and add eight Indian names to the benchmark.

As a result of the rebalancing, analysts expect the MSCI Emerging Markets Index’s overall weight to Chinese companies will drop below the current 24.5%, with the weight to India increasing from approximately 20% currently to over 22% by the end of the year. This change will continue a trend that has been occurring over the past few years.

India Ascendant

Source: Financial Times, “India closes in on China as largest emerging market,” July 23, 2024, using MSCI.

Active management in focus: CNWIX’s investments in Indian growth companies

As of June 30, 2024, Calamos Evolving World Growth Fund’s exposure to China was 14.8%. Meanwhile, the fund’s exposure to India was 39.3% with four of its top 10 holdings in Indian companies.

The fund’s allocation to India is an example of how our process results in a truly active approach to emerging market investing. Our decision to hold this sizable overweight to India reflects our commitment to investing where we believe the growth in emerging markets will occur as opposed to depending on a backward-looking benchmark to dictate what the makeup of emerging markets may have looked like.

Our high-conviction overweight to India reflects several factors. Primary drivers include:

• The attractive growth of India’s working-age population, which can benefit companies in both consumer and real estate industries.
• The government’s continued focus on infrastructure buildout, which can benefit companies in the industrials sector.
• “Make in India” government incentive plans and the country’s popularity as a China+1 supply-chain choice, which can benefit manufacturing companies. (“China+1” is a global trend where companies mitigate supply chain risks by establishing additional relationships outside China.)

Some of CNWIX’s overweight to India comes from names that are not included in the MSCI Emerging Markets Index at all. Online travel company Make My Trip, one of our top 10 holdings, is a prime example. If we stuck to only index constituents, we’d be missing out on a high-growth company where we see truly exciting and sustained potential. Make My Trip may not be in the index, but it definitely meets our top-down and bottom-up criteria. India’s growing working-age population and the expected increased penetration of the online channel within the tourism/travel industry provide powerful tailwinds. In our opinion, MakeMyTrip is well positioned to capitalize on these factors, thanks to attractive bottom-up fundamentals and its dominant position in the country’s online travel agency market.

Closing thoughts

We believe India is on a long-term course to become the largest economy on the planet and the biggest EM equity market. But we will not wait for that to be reflected in the MSCI Emerging Markets Index’s makeup. Instead, we’re following our investment philosophy and investing with conviction in what we believe are best growth opportunities in that market today.

We believe our truly active framework has been key to the results we have achieved in Calamos Evolving World Growth Fund and across the Calamos global and international suite (see “The Best Kept Secret in Global Investing” for a closer look). We’re committed to positioning our portfolios for the future, not focusing on the rear-view mirror.